CVSA

SEC Filing Summary: DeVry Inc. (10-Q)

Business Context and Reporting Period

This is a Quarterly Report on Form 10-Q for DeVry Inc. for the period ended September 30, 2009 (First Quarter of Fiscal Year 2010). DeVry is a provider of secondary and post-secondary education operating through four reportable segments: Business, Technology and Management; Medical and Healthcare; Professional Education; and Other Educational Services. The company recently acquired U.S. Education (September 2008) and Fanor (April 2009), which significantly contributed to revenue growth.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 41.9% year-over-year, driven by the inclusion of U.S. Education and Fanor, as well as strong enrollment growth and tuition increases at DeVry University, Ross University, and Chamberlain College of Nursing.
• Profitability: Net income rose 57.1% to $54.7 million. Operating income increased 69.6% to $79.4 million, reflecting improved operating leverage.
• Segment Performance:
  • Business, Technology and Management: Revenues up 23.9%; Operating income up 107.7%.
  • Medical and Healthcare: Revenues up 119.9% (significant contribution from U.S. Education); Operating income up 76.8%.
  • Professional Education: Revenues declined 3.0% and operating income fell 16.6% due to the economic downturn affecting the accounting and finance sectors.
  • Other Educational Services: Revenues grew significantly due to Fanor, but the segment recorded an operating loss of $6.5 million due to start-up investments.
• Debt Reduction: Total outstanding debt decreased from $165.9 million to $104.8 million, primarily due to repayments under the revolving credit facility.

Guidance, Outlook, and Risks

• Capital Expenditures: Management anticipates full-year fiscal 2010 capital spending in the range of $95 million to $105 million, focused on facility expansion and the "Project DELTA" student information system implementation.
• Stock Repurchases: The company repurchased 234,684 shares for approximately $11.6 million during the quarter. Approximately $4.7 million of the $50 million authorization remains available.
• Auction Rate Securities (ARS): DeVry holds approximately $59.5 million in ARS which remain illiquid due to market disruptions. The company has a put right to sell these back to UBS at par value starting June 30, 2010. While management believes current liquidity is sufficient, future impairment charges could occur if UBS cannot meet its obligations or if auctions fail to resume.
• Legal Proceedings: A settlement in principle was reached regarding a False Claims Act case concerning recruiter compensation. DeVry agreed to pay $4.9 million to resolve the matter, pending Department of Justice approval. The company denies wrongdoing.
• Outlook: Management expects softness in the Professional Education segment to persist through fiscal 2010. The company continues to invest in academic quality and future growth.

Investor Verification Checklist

• ARS Liquidity Risk: Verify the status of the UBS settlement and the likelihood of exercising the put option on $59.5 million of illiquid auction rate securities by June 2010.
• Legal Settlement Approval: Confirm if the $4.9 million settlement regarding the False Claims Act has received final Department of Justice approval.
• Enrollment Sustainability: Assess whether the double-digit enrollment growth at DeVry University and Ross University is sustainable given the competitive landscape and economic conditions.
• Capital Allocation: Monitor the execution of the $95-$105 million capital expenditure plan, specifically the ROI on the new student information system and facility expansions.
• Segment Margins: Track the profitability timeline for the "Other Educational Services" segment (Fanor and Advanced Academics), which currently operates at a loss due to heavy investment.